States with no income tax on wages
Nine states collect no income tax on wages at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. New Hampshire is a partial exception—it taxes interest and dividend income but not wages. These states fund government services through sales tax, property tax, corporate tax, and other revenue sources instead.
The absence of state income tax does not mean these states are cheaper overall. Alaska and Wyoming have no sales tax, but Florida, Nevada, South Dakota, Tennessee, Texas, and Washington all have sales taxes ranging from 5.5% to 7.25%. New Hampshire has no sales tax but charges property tax. The total tax burden depends on where you spend your money and what you own.
Key Takeaways
- Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income instead).
- States without income tax typically rely on higher sales taxes or property taxes, so the overall cost of living varies by how you spend money.
- Income tax rates in other states range from 1% to over 13%, with the lowest rates in states like Colorado, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, and Pennsylvania.
- Your actual tax burden depends on income level, type of income, deductions available, and whether you own property or rent.
- Moving to a low-tax state saves money only if your income comes from wages or business income; investment income, Social Security, and pensions are taxed differently in each state.
States with the lowest income tax rates
Beyond the nine no-tax states, several states charge a flat rate or very low progressive rates. Colorado, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, and Pennsylvania all have income tax rates of 5.75% or lower on most income. Illinois and Pennsylvania use a flat 4.95% rate, while Colorado charges 4.4% and Michigan charges 4.25%.
These rates explore to wages and most business income. However, some states exempt certain types of income—for example, several states do not tax military pensions, and others exclude retirement income for people over a certain age. The effective rate you pay depends on your income level and what portion of it falls into each tax bracket.
How state income tax brackets work
Most states that do tax income use a progressive bracket system, meaning the rate increases as your income rises. A state might tax the first $20,000 at 3%, the next $30,000 at 5%, and income above that at 7%. You do not pay the highest rate on all your income—only on the portion that falls in each bracket.
A few states use a flat tax instead. Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, and Pennsylvania all charge the same percentage on all income, regardless of how much you earn. This simplifies calculation but means higher earners pay the same rate as lower earners.
Your federal tax return does not determine your state tax. Each state has its own rules for what counts as income, what deductions are allowed, and how much you owe. Moving from one state to another can change your tax bill significantly even if your salary stays the same.
Special rules for retirement income and pensions
Many states that tax wages do not tax retirement income, military pensions, or Social Security. Mississippi, Pennsylvania, and South Carolina do not tax any retirement income. Illinois does not tax retirement income or Social Security. Louisiana excludes military pensions and some retirement income. If you are retired or receiving a pension, the state with the lowest wage tax may not be the state with the lowest overall tax on your income.
Some states offer partial exemptions based on age. For example, a state might exclude retirement income only for people over 59½ or only for income below a certain threshold. These rules change, so if retirement income is a large part of your earnings, contact the state tax authority directly or consult a tax professional before moving.
Sales tax and property tax in low-income-tax states
States without income tax typically charge higher sales tax to make up the difference. Tennessee and Washington have sales tax rates above 8%, while Texas and Florida range from 6% to 7%. South Dakota has a 4.5% base rate but allows local additions. Alaska and Wyoming have no state sales tax, but local jurisdictions may charge it.
Property tax also varies widely. Texas and Florida have moderate property tax rates, while Wyoming and South Dakota are higher. If you own a home, the property tax rate matters as much as the income tax rate. Renters avoid property tax but pay it indirectly through rent.
How to compare your actual tax burden
The state with the lowest income tax rate is not necessarily the cheapest for you. To compare, list your income sources: wages, self-employment income, investment income, pensions, Social Security. Then check each state's rules for what is taxed and at what rate. Most state tax authority websites have calculators or sample tax tables.
Next, estimate your spending. If you spend heavily on taxable goods, a high sales tax state costs more. If you own property, property tax matters. If you rent and spend little, income tax dominates. Add up all three to see the real difference. A state with no income tax but 9% sales tax may cost more than a state with 5% income tax and 6% sales tax, depending on your situation.
Moving to a low-tax state: what to know
Changing your state of residence for tax reasons is legal, but the state you move to must be your genuine home. You cannot claim to live in a no-tax state while working and spending most of your time in another state. States audit residency claims, especially for high earners, and can demand back taxes plus penalties if they determine you were not actually a resident.
To establish residency, you typically need a home address in the state, a driver's license, voter registration, and evidence that you spend time there. Some people maintain homes in two states but claim residency in only one. The rules vary by state, and the IRS and state tax authorities take this seriously. If you are considering a move primarily for taxes, consult a tax professional first.
Frequently Asked Questions
Do I have to pay state income tax if I work remotely for a company in another state?
You owe income tax to the state where you live, not where your employer is located. If you live in Florida and work remotely for a company in New York, you pay Florida tax (none) and not New York tax. However, if you work in an office in another state for part of the year, that state may tax the income you earned while physically working there.
Can I claim residency in a no-tax state if I own a vacation home there?
Owning property does not establish residency. You must live there as your primary home. States look at where you spend most of your time, where you vote, where your driver's license is issued, and where your family lives. A vacation home alone will not protect you from taxes in your actual home state.
Are Social Security benefits taxed differently in low-tax states?
Social Security is taxed by the federal government based on your total income, not by state. However, some states do not tax Social Security benefits at all, while others tax them like regular income. If you receive Social Security, check the specific state's rules—this can make a big difference in retirement.
What if I move mid-year—do I owe taxes to both states?
Yes, you typically owe taxes to both states for the portions of the year you lived in each. You file a part-year resident return in each state, reporting only the income earned while you lived there. Some states offer credits to avoid double taxation, but you must file in both places.
Do business owners pay different income tax rates than employees?
Self-employed income is usually taxed at the same rate as wages in most states, though some states offer small business deductions or exemptions. A few states tax business income differently. If you own a business, check the specific state's rules for your business structure—an LLC, S-corp, or sole proprietorship may be taxed differently.